Deputy Commissioner of Taxation v Portinex Pty Ltd

[2000] NSWSC 557

Reported Decision: [2000] 34 ACSR 422

New South Wales

Supreme Court

CITATION:	DCT v Portinex/Silindale/Dalvale No.2 [2000] NSWSC 557
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 4210/98; 4211/98; 4494/98
HEARING DATE(S):	15 June 2000
JUDGMENT DATE:	15 June 2000
PARTIES :	Deputy Commissioner of Taxation (P) Portinex Pty Ltd (Subject to a Deed of Company Arrangement) (D1) John Edward Star (Administrator) (D2) Silindale Pty Ltd (Subject to a Deed of Company Arrangement) (D) Deputy Commissioner of Taxation (P) Portinex Pty Ltd (Subject to a Deed of Company Arrangement) (D1) John Edward Star (Administrator) (D2) Dalvale Pty Ltd (Subject to a Deed of Company Arrangement) (D) Deputy Commissioner of Taxation (P) Portinex Pty Ltd (Subject to a Deed of Company Arrangement) (D1) John Edward Star (Administrator) (D2)
JUDGMENT OF:	Austin J

COUNSEL :	J T Johnson (P) P A Somerset (Sol) (D)
SOLICITORS:	Australian Government Solicitor (P) P A Somerset & Co (D)
CATCHWORDS:	CORPORATIONS - voluntary administration - defect in appointment of administrator - administrator's duty of inquiry
LEGISLATION CITED:	Corporations Law, ss 436A, 447A, 1322
DECISION:	Plaintiff to pay administrator's costs.

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

AUSTIN J

THURSDAY 15 JUNE 2000

4210/98 - DEPUTY COMMISSIONER OF TAXATION v PORTINEX PTY LIMITED (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) & 1 OR (NO.2)

4211/98 - DEPUTY COMMISSIONER OF TAXATION v SILINDALE (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) PTY LIMITED & 1 OR (NO.2)

4494/98 - DEPUTY COMMISSIONER OF TAXATION v DALVALE PTY LIMITED (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) & 1 OR (NO.2)

JUDGMENT (ex tempore, revised 16 June 2000)

1 HIS HONOUR: The argument as to costs in these three matters has raised an important matter of principle. One of the central aspects of the cases regarding Portinex and Silindale was whether resolutions, purporting to have been resolutions of the board of directors of each company on 25 March 1998, were valid. I found that they were not valid, but that curative orders could be made under ss 447A and 1322 of the Corporations Law. Counsel for the plaintiff submits that there should be no order for costs against the plaintiff to the extent that the hearings dealt with that issue.

2   The central submission is that it is the duty of a person notified of his or her appointment as administrator to ensure promptly that the appointment is valid. The administrator could consult the constitution of the company and relevant registers, including the share register. Counsel for the plaintiff contended that, had Mr Star done so in these two cases, he would have been able to pick up the problem which led me to hold that the resolutions were invalid. In effect, says counsel, to allow Mr Star to rely upon the fact that he was unaware of the defect in the appointments is to ignore his duty to satisfy himself of their validity.

3 A voluntary administrator has a duty of care which has been recognised in the cases. In my opinion, the discharge of that duty of care requires the voluntary administrator to satisfy himself or herself, immediately after appointment, that the resolution of the directors under s 436A authorising the appointment appears on the face of the minute which records it to be a valid resolution (or if there is not yet any minute of the resolution, that the facts and circumstances appear on their face to amount to a valid resolution). Additionally, the administrator should satisfy himself that the instrument of appointment, extended pursuant to the resolution of the board, appears on its face to be valid.

4   However, in the present case there was nothing in the minute of the resolution of 25 March 1998 for either Portinex or Silindale, nor in the instrument of appointment, to suggest invalidity. The problem arose because of an invalid attempt at an earlier stage to amend the constitutions of the companies to permit a single director board.

5   It cannot be correct that the administrator has a duty, upon appointment, to trawl back through the records of the company to ensure that there is no defect prior to the resolution of appointment, if the resolution appears ex facie to be valid. The point is best illustrated by supposing that the ineffective adoption of a new constitution had occurred some years before the board's resolution for Mr Star's appointment. It would be implausible to assert that the administrator had any obligation to go back to that previous event and establish its validity in such a case. In the present circumstances the adoption of the new constitution occurred only about nine days before the invalid board resolutions, but the principle is the same. In my view, the board's resolutions being on their face valid, it cannot be said that Mr Star had any duty to satisfy himself before taking up his position that the constitutional amendments which purported to permit the board to be constituted as a single director board had been adopted validly.

6   It is true that the plaintiff was, in a sense, a contradictor to the notices of motion filed in Court at the commencement of the hearing for orders curing the invalidity of the board's resolutions. But no objection was taken by the plaintiff to the return of the notices of motion instanter, nor for the hearing to deal with the question of curative relief. The issue whether curative orders should be made was an integral part of the hearing as it took place, and the plaintiff vigorously opposed any such orders.

7   Although the Court agreed with the plaintiff's submission that the boards’ resolutions were invalid, the Court, nevertheless, made the curative orders sought by the defendants, and so the plaintiff was unsuccessful on that point, as on other points. If the administrator had discovered the defects in the resolutions in some other manner, it may well have been incumbent upon him to bring the issue to Court for consideration. But the fact is that the matter came to Court by virtue of these proceedings and at the instance of the plaintiff. My view is that costs should follow the event. For that reason I have ordered that the plaintiff should pay the defendants' costs in the three proceedings on a consolidated basis.

8   After I delivered the above oral reasons for judgment, counsel for the plaintiff drew my attention to the distinction between the administrator's duty at or immediately after his or her appointment (the subject of my reasons for judgment) and the subsequent duty of inquiry during the course of the administration. I agree with counsel that the latter duty may be different in content from the former, and may be more extensive. One can envisage circumstances where an administrator ought, during the course of his or her investigations, follow up with diligence lines of inquiry which would lead to discovery of a defect in constitutional amendments relating to the constitution of the board, and consequently a defect in the board's resolution. But in my view, the present cases are not in this category. The mere fact that the constitutions of the companies were substantially altered nine days before the board's resolution was not itself, in my opinion, ground for the administrator to make inquiries as to the validity of that alteration.

9 In reaching this conclusion I take into account that the alterations were, according to the evidence, alterations to permit the companies to operate as single director companies. The alterations were made shortly after the enactment of amendments to the Corporations Law which permitted single director companies at a time when (I infer) proprietary companies were adopting such changes to their constitutions quite widely. It would have been reasonable for the administrator, being aware that such alterations had been made in the recent past, to choose not to investigate the circumstances of their making, on the basis that the alterations were of a routine kind and the board resolutions were made by the ‘principal’ of the companies.
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Last Modified: 09/26/2000